Gold steadies after previous day’s rally on Fed cut
March 4, 2020
“Gold was little changed on Wednesday, a day after its biggest percentage gain since June 2016 on the U.S. Federal Reserve’s surprise rate cut, as traders awaited further direction from other major central banks and governments. Spot gold was up 0.1% to $1,641.05 per ounce at 1326 GMT. Gold surged as much as 3.7% on Tuesday after the U.S. central bank cut interest rates by 50 basis points, in an emergency move to help cushion the economic damage caused by the coronavirus outbreak. ‘The market is probably waiting for additional potential announcements from other central banks … the stock market has recovered a little bit, and that’s (leading to) some profit taking in gold,’ said a Saxo Bank analyst.
‘Cutting rates was probably a wrong decision because it also leaves the Fed with even less ammunition for future cuts … the market is based on the assumption that it’s a small plaster on the big wound and it’s not going to help in the short term.’ This was the Fed’s first cut outside of a scheduled meeting since the 2008 financial crisis. Lower interest rates reduce the opportunity cost of holding non-yielding bullion. European equities rose as traders hoped the European Central Bank and eurozone governments would provide more stimulus after the Fed’s move.”
CNN BUSINESS/Matt Egan
The Fed might have to cut interest rates all the way to zero
March 4, 2020
“The Fed’s quest to avoid a coronavirus-fueled recession may just be getting started. The US central bank fired a weapon Tuesday it has in the past saved for such catastrophes as the September 11 terror attacks, the collapse of Lehman Brothers and the bursting of the dotcom bubble. The emergency rate cut, the Fed’s first since 2008, is designed to insulate the American economy from the coronavirus.
Yet red flags only flew higher on Wall Street after that announcement. The Dow reverted to selloff mode, dropping 786 points, or 2.9%. More alarmingly, the 10-year Treasury yield plummeted below 1% for the first time on record. These are signs that the Fed will need to make deeper rate cuts, perhaps even plunging the U.S. back to 0% interest rates — emergency territory last experienced during the Great Recession. ‘I would not be surprised if within the next few months the Fed went back down to zero,’ said David Kelly, chief global strategist at JPMorgan Funds. The bank’s US economics research team told clients Tuesday they now see a 50% chance of a return to zero this year.”
MARKET WATCH/Greg Robb
Economists might not say it out loud, but recession risks are above 50%
March 4, 2020
“Private-sector employment slowed a bit in February, according to an estimate from ADP and Moody’s Analytics released Wednesday. The private sector added 183,000 in February, down slightly from 209,000 in the prior month. The February gain was higher than the 165,000 job gain expected by economists surveyed by Econoday. Large businesses did well in February, adding 133,000 jobs. Small businesses added 24,000 jobs and medium-sized businesses added 26,000. According to data on 10 major industries tracked by ADP, education and health care had strong job gains, along with leisure and hospitality.
It is still too soon to see any impact of the coronavirus impact on the data. Economists expect a 170,000 rise in nonfarm payrolls in February, down from 225,000 in the prior month. The unemployment rate is expected to tick down to 3.5% …. Mark Zandi, chief economist of Moody’s Analytics, said the slowdown in jobs in February was caused by the trade war with China. He said the ADP estimate was boosted by warm weather. ‘We’re going to get much weaker job numbers going forward,’ Zandi said, as there will be a payback for the warm weather gains. ‘Even without the virus, we were going to get weak numbers and now with the virus, we’re going to get much weaker numbers. It is just a matter of time,’ he said. ‘Economists have a really hard time saying over 50% probability of recession. I assure you, almost every economist out there is thinking over 50% probability,’ Zandi said.”
NBC NEWS/Martha C. White
Could coronavirus trigger a recession?
March 4, 2020
“Economists now say it is increasingly likely that virus-related financial fallout will spill over into the second quarter, cutting into GDP growth and potentially even dragging the American economy into recession — although most are still hopeful that a worst-case-scenario can be avoided. The biggest unknown is still how, and how severely, the novel coronavirus, dubbed COVID-19, will spread in the U.S. ‘The stock market is anticipating the fact that Q2 will be quite a bit lower than Q1,’ said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. ‘It’s just the expectation that we get a big outbreak in the U.S., which is not unlikely at this point.’
‘What we don’t know yet is just how panicky people will become as the number of cases in the U.S. rises,’ said Jamie Cox, managing partner at Harris Financial Group. ‘I do think the effects on the economy are going to be sharp for a very short period of time,’ he said. ‘I would say for the short run, that consumption is still going to be strong but travel and tourism is going to be a drag on GDP for sure. Inventories are going to drop. I think the first set of data that we’ll receive for this period of time will show steep drops,’ Cox said. If Chinese factory activity recovers by mid-April, he predicted, longer-term economic damage could be mitigated. In the meantime, though, analysts said last week’s market turmoil reflects looming anxiety for the next quarter as well as the current one. ‘It’s no longer just a Q1 event,’ said Mark Zandi, chief economist at Moody’s Analytics.”
Virus Takes Aim at $1.7 Trillion Industry as Tourists Stay Home
March 3, 2020
“On Lake Como in northern Italy, spring normally spells the return of the tourists. The likes of George Clooney descend on waterfront villas, couples wander the cobbled streets and design fairs fill hotel rooms with well-heeled travelers. This year, because of the coronavirus, hoteliers are wondering whether the visitors will come at all. Hotels in the area saw more than half their bookings canceled in three days last week as the virus spread through northern Italy in the biggest outbreak outside Asia. Now innkeepers are waiting anxiously to see the impact on the all-important summer months.
‘We had our ups and downs in the past, but nothing like this,’ said Roberto Cassani, 58, president of the Como hotel operators’ association. ‘American tourists in particular seem to be victims of a collective psychosis. I am really worried.’ As the illness goes global, the tourism business faces a growing threat. Many of the Chinese travelers who have driven the industry’s expansion were already staying home … That emptied lodgings in the casino hotspot of Macau, cleared beaches across Southeast Asia and eliminated lines outside Louis Vuitton boutiques in Paris. Even as the viral spread slows in China, it’s taking off elsewhere, including South Korea and Italy. Now it’s not just Chinese who are staying home. Germans and Belgians are rethinking ski trips to Italy. Japanese are canceling visits to Bali. At stake is the $1.7 trillion in revenue that international tourism generated in 2018, according to the UN World Tourism Organization … It’s the biggest setback for the travel industry since a downturn that accompanied the 9/11 terrorist attacks in 2001 and the SARS outbreak and the war in Iraq two years later.”
THE WALL STREET JOURNAL/ Stella Yifan Xie
China Workers Suffer Layoffs, Slashed Pay, Shutdowns as virus Batters Businesses
March 4, 2020
“A sharp economic slowdown in China caused by the coronavirus epidemic is putting new pressure on the country’s labor market, as businesses struggling to maintain or revive operations resort to pay cuts and layoffs—or simply shut down. More job cuts could further depress consumer spending and weaken an economy that is already projected to slow significantly or contract in the first quarter. Jim Huang, chief executive of China-America Commodity Data Analytics, said he had no choice but to lay off 18 of his 20 employees in Wuhan after it became impossible to run his business in the hard-hit city because of a government quarantine there.
Other Chinese companies face similar problems. Ltd., an online used-car dealer with more than 12,000 employees, began furloughing staff at the beginning of March and paying reduced salaries … Although companies are pushing to restart factories and ramp up business as fast as possible, quarantines and other government restrictions have made it hard to do so. As of late February, only 30% of China’s small and medium-size companies had returned to normal operations, according to a survey by the Ministry of Industry and Information Technology.”